The second round of negotiations on the Transatlantic Trade and Investment Partnership (TTIP) free trade agreement (FTA) between the EU and the U.S. were postponed due to the partial U.S. government shutdown. These talks are unique in trade policy because they will focus more on regulatory barriers than on tariffs. Both trading partners have strong regulatory systems that have similar goals for health and safety, but they often needlessly restrict trade flows that would be the advantage of consumers and producers in both economies.
Two-way EU-U.S. trade is huge, about $2.6 billion a day in goods and services with nearly $4.0 trillion invested in each other’s economy. In November of 2011 the U.S. and the EU appointed a High Level Working Group (HLWG) of senior government officials to explore how the two economies could be even more closely aligned to the benefit of both sides. The HLWG indentified regulatory and non-tariff barriers as one of three issue areas. These “behind-the-border” obstacles to trade would be addressed by reducing unnecessary costs and administrative delays stemming from regulations while still achieving legitimate regulatory objectives of each side.
The HLWG recommended an ambitious SPS (sanitary/phytosanitary) – plus chapter built on the WTO SPS Agreement including that measures be based on science and international standards or scientific risk assessments. Regulatory coherence, transparency, harmonization, equivalence and mutual recognition as appropriate are all goals of the effort. The final framework would also provide the opportunity for future regulatory cooperation. The FTA should provide more regulatory agreements over time, not a fixed conclusion.
U.S. Trade Representative (USTR) Michael Froman recently outlined how he sees regulatory reform. He began by explaining that the issue is “how to bridge the divergences between two well-regulated markets, not about launching a broad deregulatory agenda.” That should be obvious from looking at the current regulatory programs, but needed to be restated because anti-trade groups are busy raising spurious issues. TTIP will build on these commitments to strong regulations. Froman went on to explain that over decades, differences in our approaches to regulations and standards have created barriers to trade and investment that increase costs and negatively impacts our industrial competitiveness and consumers.
He said it is wrong to say the EU and U.S. cannot bridge their regulatory differences because the EU only takes regulatory action based on the precautionary principle or that the U.S. bases its regulations solely on cost-benefit analysis, and that it does not take qualitative factors into consideration. Those distinctions are decreasingly important in the world of tomorrow in terms of regulations.
EU Trade Commissioner Karel De Gucht voiced a similar positive message about striving for mutual recognition of regulations across a broad range of industries. He expects agreement by next January on industries to target for regulatory convergence.
While acknowledging the technical complexity of many regulatory systems, Froman focused on three cross-cutting principles – transparency, participation and accountability – that form the core of the U.S. regulatory system. Transparency means providing adequate advance notice of specific proposed regulatory measures. Participation provides meaningful opportunities for input from stakeholders – public and private, foreign and domestic. Accountability provides responses to input, rationale the final regulatory decisions, scientific evidence, and an impact analysis. These allow potential trade frictions to be resolved ahead of time, before implementation.
According to reports by Inside U.S. Trade, the E.U. Commission is cool to Froman’s approach. It would interfere with what is already a very different legislative and regulatory system from the U.S. They want to focus on issues they believe to be more substantive. The EU prefers to have regulators sit down with industry and determine ways in which specific rules could be aligned across the Atlantic, allowing regulatory equivalence in both countries. U.S. regulators have shown resistance to the initiative, placing the burden on business to prove that U.S. and EU rules are equivalent. U.S. trade officials seem to view the approach positively, but the EU is several steps ahead of the U.S. in exploring how the idea would work in practice.
Froman called for similar efforts for standards. All stakeholders, producers and consumers regardless of nationality, should have equal access to the standard-setting process. Nationality-based processes are a tempting way to carve out market share for national constituencies and standards-setters and regulators end up leaving out cutting-edge technical solutions. Many private industries are ahead of the curve with cutting-edge ideas and the speed of standards setting by the market is far greater than by bureaucracies.
Talk of science-based regulations have caught the attention of many industry people in U.S. agriculture, particularly those who have suffered under regulations for biotech crops, hormones in beef production and pathogen reduction treatments on poultry meat. This is the first opportunity in over 30 years to have a full and frank discussion about science. Agriculture would benefit from the certainty and speed of the Forman approach or could work with the industry approach.
In the midst of the encouraging news comes more troubling news. According to Marshall Martz, a Washington, DC lawyer specializing in agriculture and food policy writing for Agri-Pulse Communications, the EU Commission has promulgated a new set of mandates that will effectively ban a quarter to a third of all US agricultural output from sale in Europe. Rather than using international scientific standards, the new rules would simply say “no” to a number of pesticides and “no” to products with even the smallest residue on them.
This one step forward and one back should be no great surprise with the EU. Years of particular approaches to trade policy will not be undone in one set of negotiations. Even Europeans who speak favorable about a trade agreement are often quick to provide arguments that consumers don’t want beef from animals fed additional hormones, or that food has to be sustainably produced without much consideration of science.